Reimagining Capitalism - a book review

Reimagining Capitalism in a World on Fire

Rebecca Henderson. PublicAffairs, $28 (336p) ISBN 978-1-5417-3015-1 

When the book finally arrived, I was eager to sink my teeth into it. I did not wait in vain and I was not disappointed. The timing was perfect. Rebecca Henderson spoke to my heart and mind. Henderson is an American economist, currently the John and Natty McArthur University Professor at Harvard Business School. She teaches Reimagining Capitalism in the MBA Program.

Rebecca Henderson’s message is simple: Corporations and industries must shift the capitalist paradigm from maximizing shareholder value (as Milton Friedman argued in his 1970 NYT-article and super-charged by Jensen and Meckling 1976 article) to a stakeholder perspective, i.e., “build[ing] great products in the service of the social good,”. 

The stakeholder perspective, which even the US-based Business Roundtable support, is more in keeping with UN’s sustainability goals and the triple bottom line logic, i.e., in order to be profitable in the long run, firms must take care of the environment and people on the inside (i.e. employees) and people on the outside (i.e. customers).

To combat “massive environmental degradation, economic inequality, and institutional collapse,” Henderson identifies five key areas of reform:

1. creating shared value between businesses and consumers 
2. building “purpose-driven” organizations 
3. establishing financial metrics to measure the environmental and social impact of business practices
4. cooperating on sustainable, self-regulatory standards across whole industries
5. private sector support for democratic reforms. 

What makes Henderson’s arguments convincing is that she backs her claims that such changes are possible by citing numerous examples. The left impression is that it is possible.

In the last section of the book, she discusses what makes nations prosperous. She does this by borrowing some of the thinking from Daron Acemoglu and James A. Robinson excellent book «Why Nations Fail». In short, economic and political institutions need to be inclusive (not extractive). The logic rest on participatory Government and free markets. She summarizes this section elegantly: «Under effective inclusive institutions, effective governments are valued partners in sustaining both the free market and a free society.»

In closing, Henderson asks and answers the question: What will a reimagined capitalism look like? Without providing the answer, I encourage the reader to read the book.

For me, the book was a revelation. A book I have been looking for. A book that confirmed and advanced my thinking on the future role of the modern corporation. A role that contributes to uphold and advance the basics of a democratic society with an inclusive and cooperative government. In short, corporations must contribute to advancing the society and its institutions that have made corporations so successful in the past.